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90% of the time, registering a company in China means registering a WFOE. A WFOE stands for Wholly Foreign Owned Enterprise. This is also sometimes, but less often, abbreviated WOFE (Wholly Owned Foreign Enterprise). WFOEs are the most popular and best option for foreigners who want a company in China.
The other possible company types in China are a Chinese Company which is Chinese wholly owned enterprise, a Joint Venture (JV) which is a partially Chinese owned and foreign owned enterprise, and a Representative Office (RO) which can only be opened via a company abroad and can only perform non-profit activities. The RO also cannot directly employ any staff in China. Hence the WFOE is the preferred vehicle for the majority of foreign businesses entering China.
What can a WFOE do?
- provide a wide-range of services to Chinese consumers and businesses
- sell products (including food, beverages, alcohol, medicine, baby formula and others with the right licenses) to Chinese consumers and businesses
- Export and/or import goods without a third party
- Hire local and foreign employees in China
- Invoice clients in China (Fapiao)
- Open factories for manufacturing purposes
3 Types of WFOEs
There are 3 types of Wholly Foreign Owned Enterprises to choose from when setting up a business in China:Consulting WFOE, Trading WFOE and Manufacturing WFOE.
A Consulting WFOE is the default company type and can provide services from or to China. These services widely range from but are not exclusive to training, marketing, research, design, finance, advisory, personal training, software etc…
A Trading WFOE is essentially a consulting WFOE equipped with an import/export license and other special licenses depending on the type of goods the trading company is trading, exporting out, or importing into China. These companies can freely carry out trading activities cross-border without the use of a third party for customs purposes.
A manufacturing WFOE can conduct manufacturing operations and even open a wholly-foreign owned production factory. A manufacturing requires an environmental inspection and is thus more time consuming to set up than both consulting or trading WFOE.
The Free Trade Zones
The Free Trade Zones are at the center of multiple inquiries. So who benefits from registering inside of a Free Trade Zone and what exactly are the benefits of being in these special economic areas?
To be clear, Free trade zones are only truly advantageous to trading companies importing into China and manufacturing companies with manufacturing plants within the Free Trade Zone. This is because the importer does not need to pay import taxes on goods and raw materials shipped to the free trade zone. The import tax only needs to be paid when the merchandise leaves the free trade zone and enters China to be sold.
In the case of a trading company, this is great for cash flow. Being able to warehouse large quantities of your product in China without having to pay the import tax until the product is sold.
For manufacturing companies this is great if the manufacturing of the product takes place within the free trade zone, as there will not be any sort of tax on your imported primary products, which can be processed into more complete products and then either shipped out of china without ever paying any duties.
The Free Trade Zone also offers the advantage of a free-exchange policy where the exchange rates are flat so that USD, EUR, JPY, CNY, and many more currencies can be freely exchanged for cross-border convenience.
2021: Stricter Policies
There are positives and negatives to the new regulations concerning company registrations in China. It is now easier than ever before to register a company in China and registration can be done online. However, the governing body is also more regulated than ever before.
In the past few months from the date of writing this article (June 29th) it is reported that over 200 foreigners were kicked out of China due to holding visas under foreign-owned entities that were not operating regularly. That is to say they were not conducting transactions or providing proof of operations.
This happened to companies registered in the Songjiang district, roughly an hour away from Shanghai. None of FDI China’s clients have been affected due to our centrally located registered addresses, however we expect this trend in government regulations to continue as the Eastern China block transitions to a highly developed zone the likes of Western Europe and the USA.
China Company Registration Procedure 2021
Unlike in Hong Kong or elsewhere in the world, the registration of mainland China corporations is usually done solely in Chinese, there are virtually no, if any English details listed and virtually no system in place for checking these details. This makes the registration process a very arduous task. It takes months to process an application to become registered in China, which itself is an arduous process. If one is unable to complete registration in China on time, then even having the application approved is next to impossible, as the approval of a business in China is a matter of weeks, not days.
01. Acquire a registered address & Company name
With that being said, the first step in registering a company in China is the registered address and the English and Chinese name of your new entity in China. Agencies usually provide the name check and Chinese name assistance. Some agencies can also provide suitable registered addresses from administrative purposes.
This is where foreign companies wishing to register in China will need to fill out the CCTI, or China Company Information Form provided to them. This is a simple two-page form, which is quite easy to complete. To begin, you will be asked to provide your full name, together with your address and contact number. Next, you will be required to provide information relating to your business structure, with regard to which you will be the director, share holder, legal representative, company supervisor and financial manager, along with their contact numbers. All of these items are required in order to complete the China company registration process. The financial manager can be your tax & accounting service provider or an individual.
02. Organize documents and Register
Once the first step is finished, the required documents are collected, organized, and translated by the agency and the online registration commences. It takes roughly one month at this point for the business license to be issued along with the 3 legally binding company chops. One is the official company chop and the two others are the financial chops.
03. Corporate Bank account opening
In the past, the appointment with the bank in China for the corporate bank account was conducted in-person, but due to the pandemic, some banks have allowed remote video appointments. China company registration agencies can help set up these appointments successfully.
04. Tax registration and sub-accounts
Once your corporate bank account is created, your service provider will apply for your tax number registration as well as create your social insurance account, tax account and housing fund account.
Once these accounts are set up it is important that you have your tax and accounting set up either by an accredited Chinese accountant or an accredited tax and accounting company (such as FDI China). This is a necessary ongoing effort in order to stay compliant in China. Even if you do not have transactions yet, you still have to report to the local government on a monthly basis.
At this point in time, a consulting WFOE is ready to operate.
05. Additional licenses (import/export and others)
After the core of the WFOE is set up, the required licenses for trading companies can be acquired. These special licenses include export, import, alcohol (wholesale & consumer), food & beverage, medicine and baby formula licenses. All of which have a transparent and legal path to acquiring.
06. Manufacturing company documents
A manufacturing company is only half of the way there as the formed company must now pass a mandatory environmental assessment before operations can commence at the site of interest.
There are several options available for ensuring that your China company registration is completed as quickly as possible and registration can take place within a short space of time. In the traditional system, which was used for registering many years in the past, there were a number of months required for processing. However, in today’s fast paced Chinese administration, there is now a new and faster alternative, which has been especially designed to speed up registration in China.